News & Commentary:

February 2010 Archives

Articles/Commentary

Against the GrainCarlisle Ford Runge and Carlisle Piehl Runge (Foreign Affairs) Jan/Feb 2010
The "green revolution" dramatically boosted crop yields throughout the world, but it also bred overconfidence and complacency. Now, global food stocks are too low, and food prices are too high. Malthus is back.

Debt aftershocks to shake Haiti's recovery?: IMF and World Bank debts provoke outcryBretton Woods Update No. 69 Jan/Feb 2010
An IMF loan to Haiti in response to the devastating earthquake in early January has been criticised for exacerbating the country's debt burden and endangering recovery. Plus: The World Bank's conflicted role in energy; human rights and the World Bank's energy policy; World Bank prospects for climate finance, others weigh innovative sources; IDA replenishment; and more.

The Ring of FireBill Gross (PIMCO) Feb 2010
History's cycles of greed, fear and their economic consequences paint an indelible landscape for investors to observe.

The Roots of China’s Rapid RecoveryFan Gang (Project Syndicate) Feb 2010
For much of the world, China’s ability to shrug off the global financial crisis and maintain a strong growth trajectory in 2010 and 2011 seems too easy. But, while aggressive stimulus certainly helped, China's real salvation was cautious macroeconomic management well before the crisis hit.

The End of Financial Globalization 3.0Moritz Schularick (EV) Feb 2010
Over the past decade, developing nations such as China built up reserves to prevent a repeat of the 97-98 East Asian financial crisis. However, this may have set the stage for our current financial troubles.

Can Greece Avoid the Lion?Kenneth Rogoff (Project Syndicate) Feb 2010
Even as the EU and the IMF lay the groundwork for a giant first-round bailout, debate is swirling about whether Greece can avoid sovereign default. The problem is not only the numbers, but also credibility: thanks to decades of low investment in statistical capacity, no one trusts the Greek government’s figures, and Greece’s default history hardly inspires confidence.

Confronting Asset Bubbles, Too Big to Fail, and Beggar-thy-Neighbor Exchange Rate PoliciesMorris Goldstein (PIIE) Feb 2010
The global financial crisis presents an opportunity—for the first time in many years—for wholesale reform of the international financial and monetary system. The root causes of the crisis, says Goldstein, can be found in both the financial and monetary spheres and so reforms must be prescribed for both. On the financial side, he emphasizes two problems: pricking asset price bubbles before they get too large and confronting "too big to fail" financial institutions. On the monetary side, he concentrates on what can be done to induce large, surplus economies to abandon now—and avoid in the future—beggar-thy-neighbor exchange rate policies. Central banks and regulatory authorities need to try much harder to identify bubbles before they get too large and consider a better bubble-busting tool kit, which would include some combination of instruments such as regulatory capital and regulatory liquidity requirements, margin requirements, loan-to-value ratios on residential and commercial mortgages, and lending standards. To confront "too-big-to fail," if higher capital requirements for larger financial institutions are not enough, Goldstein prescribes taking together four policy measures: requiring all systemically important institutions to have wind-down plans that would prevent unacceptable spillovers; ensuring that special resolution authority exists for all systemically important financial institutions; designing resolution authority in a way that supports market discipline; and imposing explicit size limits on systemically important financial institutions relative to GDP. Goldstein then draws attention to China's highly significant case of beggar-thy-neighbor exchange rate policy and the International Monetary Fund's abysmal surveillance of the problem. He recommends that the Fund become far tougher on errant countries than it is now. The Fund's engagement with members who have emerging exchange rate problems should be made less subject to politicization and long delays. There needs to be a workable framework for the Fund's exchange rate surveillance that is capable of sending the message that the Fund views the country's exchange rate policy not only as ill-advised but also as being inconsistent with the country's obligations as a member of the Fund and, hence, that the policy has to be changed. Finally, there needs to be a workable, graduated set of penalties for countries that refuse persistently to honor their international obligations on exchange rate policy.

The Euro’s Final Countdown?Sylvester Eijffinger and Edin Mujagic (Project Syndicate) Feb 2010
The introduction of the euro in 1999, it was claimed, would narrow the economic differences between the member countries of the monetary union. After the common currency’s first decade, however, increased divergence, rather than rapid convergence, has become the norm within the euro area, and tensions can be expected to increase further.

Development’s New DonorsAlexi Kudrin and Robert B. Zoellick (Project Syndicate) Feb 2010
The rise of new development partners – emerging markets that are channeling billions of dollars to developing countries – opens possibilities for fresh ideas and resources to help overcome poverty, sustain inclusive economic growth, and address global issues such as food security and climate change. An upcoming conference in Moscow promises to help realize these opportunities.

The Greek Crisis and BeyondIan Bremmer (Project Syndicate) Feb 2010
As euro-zone leaders face growing uncertainty in financial markets about the public finances of Greece and other member countries, their statements, albeit somewhat vague, underscore a much larger story – one that will force firms and investors to question their assumptions about Europe’s economic, financial, and political environment.

Europe’s Trojan HorseBarry Eichengreen (Project Syndicate) Feb 2010
The Greek crisis shows that the EU is still only halfway toward creating a viable monetary union. Unless it creates a proper emergency financing mechanism – and pushes for political integration required to make such a mechanism feasible – the next crisis will make this one look like a walk in the park.

Teaching PIIGS to FlyNouriel Roubini (Project Syndicate) Feb 2010
If Greece does not restore fiscal sustainability and competitiveness, a partial bailout by the EU and the ECB will become necessary in order to avoid the risk of contagion to the rest of the euro zone. That is why a credible IMF program that ties financial support to the progressive achievement of fiscal and structural reform goals is the right solution.

Will Greece Go To the IMF?Simon Johnson (Project Syndicate) Feb 2010
With Greece and other troubled euro-zone economies having surrendered monetary policy to the European Central Bank, the crisis brewing in Europe seems tailor made for the "new IMF" to ride to the rescue. But EU leaders will try hard to keep the IMF out for entirely self-interested reasons, which is bad news for Greece – and for anyone who cares about global financial stability.

Saving the Greek SinnerHans-Werner Sinn (Project Syndicate) Feb 2010
The Greek disaster was possible because its government deceived its European partners for years with faked statistics. The other euro-zone countries, fearing a massive loss of trust in the common currency, have no choice but to come to the rescue, but the price for Greece will be a significant loss of sovereignty.

The Illusion of a Chinese BubbleFan Gang (Project Syndicate) Feb 2010
Explosive growth in money supply and credit have inspired some China watchers to regard the country’s economy as a bubble, if not to predict a hard landing in 2010. But that judgment seems premature, at best, given the reasons behind the credit growth and the government's recent moves to address signs of overheating.

How Safe Are Your Dollars?Martin Feldstein (Project Syndicate) Feb 2010
Chinese officials and private investors around the world have been worrying aloud about whether their dollar investments are safe. But, while trepidation about the dollar’s future is driven by several different but related concerns, the bottom line is that these fears are exaggerated.

A framework for central banks and bank supervisionHans Gersbach (VoxEU) Feb 1, 2010
Should monetary policy and banking regulation be conducted by separate bodies? This column proposes a new policy framework whereby the central bank chooses short-term interest rates and the aggregate equity ratio while banking regulation and supervision, including the determination of bank-specific capital requirements, would be left to separate bank-regulatory authorities.

How the bottom fell out of 'old' DavosGideon Rachman (FT) Feb 1, 2010
Uneasily conscious of a shift of power to the east, western leaders are questioning ideas that used to underpin Davos. Dominant themes at last week's World Economic Forum included a backlash against high finance and doubts about free trade. Is this a temporary or a permanent change.

Why do the Chinese save so much?Shang-Jin Wei (Forbes) Feb 2, 2010
There are too many men--and hoarding cash is one way to triumph in a competitive marriage market.

Financial Crisis Lessons from Latin AmericaLiliana Rojas-Suarez (CGD) Feb 2, 2010
Latin America, once a source of global financial instability, weathered the 2008--09 financial crisis remarkably well, reaping the benefits of more than a decade of policy reforms. This paper identifies eight lessons. Among them: design financial regulations based on national needs, not the needs of industrial countries.

Focus on ways for banks to fail safelyKevin Warsh (FT) Feb 2, 2010
Dealing with the problem of financial institutions which are too big to fail should be the first priority in Washington. Any other solution is second best.

What the world must do to sustain its convalescenceMartin Wolf (FT) Feb 2, 2010
The policy interventions of late 2008 and 2009 resulted in a far briefer and shallower recession than most imagined a year ago. The big questions for this year are how quickly to withdraw the monetary and fiscal stimulus and which should be withdrawn first.

Are sovereign wealth fund investments politically biased?Rolando Avendano & Javier Santiso (VoxEU) Feb 3, 2010
Are sovereign wealth funds substantially different in their investment choices from other types of institutional investor? This column compares the holdings of two groups of sovereign and mutual funds – and finds a few differences. But, contrary to popular belief, evidence suggests that sovereign and mutual funds’ investments do not differ when looking at the political profile of targeted countries.

Bull Market Can't Last If You Mind the GapMohamed A. El-Erian (Bloomberg) Feb 3, 2010
Judging from market valuations, I sense quite a gap between consensus market expectations and key political and economic realities, especially in the U.S. If the gap isn’t bridged by the validation of the more optimistic expectations, investors may well find that January’s global equity sell-off was just a precursor to a disappointing year for several asset classes, including stocks.

Quants' Risk-Free Ideas Sink Market, Cause RuinSusan Antilla (Bloomberg) Feb 3, 2010
To become a potentially market- destroying “it” group on Wall Street, you need some arrogance, enough brains to justify making huge financial bets, utter cluelessness about lessons learned from finance’s booms and busts, and a sincere belief that your unique contributions to Wall Street will mean, ahem, that this time it really is different, so old truths can be ignored.

How Best to Boost US ExportsC. Fred Bergsten (PIIE/WP) Feb 3, 2010
President Obama has smartly suggested that a new export strategy could support 2 million very good American jobs, more than created by his stimulus initiative. The United States already sells about $1.5 trillion worth of goods and services annually to the rest of the world, which creates about 10 million high-paying jobs. Every $1 billion of additional exports will produce about 7,000 very good jobs. Robust export expansion would also reduce our large trade deficits and resultant need to borrow abroad to finance them.

G33 Paper on SSM Sparks Exporters' IreBridges Weekly Trade News Digest, Volume 14, Number 4 Feb 3, 2010
Members of the G33 group of import-sensitive developing countries aired their concerns about weaknesses in the Special Safeguard Mechanism, a trade tool that would allow developing countries to raise tariffs in the case of an import surge or price depression, in a document released last week.

Obama: US Must 'Seek New Markets Aggressively'Bridges Weekly Trade News Digest, Volume 14, Number 4 Feb 3, 2010
US President Barack Obama has spoken out forcefully in favour of opening up trade, in perhaps his highest-profile speech of the year.

Confronting the Debt ThreatRyan Avent (CFR) Feb 3, 2010
Some of Obama's budget proposals are sound policy, but congressional gridlock and faster economic reforms in China and Europe could jeopardize U.S. competitiveness.

Bernanke who?Julian Delasantellis (AT) Feb 4, 2010
China's efforts to cool its economy are already having an impact elsewhere - notably on export-related stocks in the United States, such as those involved in steel, shipping and natural resources. The most important monetary official in the world may now be based, not in Washington, but in Beijing.

It is the poor who pay for the weak renminbiArvind Subramanian (FT) Feb 4, 2010
It is time to move beyond the global imbalances perspective. Beijing is engaged in mercantilist trade policy whose costs are borne more by developing countries than rich ones.

What's next for the dollar?Axel Merk (AT) Feb 5, 2010
Tightening credit may push up mortgage costs in the United States, threatening an already questionable housing market recovery. That may encourage Federal Reserve chief Ben Bernanke to print more money, gambling that higher inflation from a weakening dollar may drive home prices back up again.

Global: Reining in the Front-RidersManoj Pradhan (MS GEF) Feb 5, 2010
The monetary peloton will change gears as the Fed and the ECB hike rates, likely in 3Q10. Central banks who wish to tighten their policies in sync with the peloton will likely face less currency appreciation, giving them more legroom.

The Sovereign Debt DilemmaSebastian Mallaby (CFR) Feb 5, 2010
European countries' debt problems--in Greece, Portugal, Spain, Ireland, and elsewhere--have spurred market volatility and raised doubts about whether the global economic recovery is sustainable. Investors fled the euro after the European Union failed to convince them that faltering EU members could rein in government deficits and pay down debt. Investors are also questioning the U.S. dollar's stability--despite its rise against the euro--given the United States' growing deficits, high U.S. unemployment, and loose monetary policy.

North Korea's Failed Currency ReformMarcus Noland (PIIE/BBC) Feb 5, 2010
On November 30, 2009, North Korea launched a surprise confiscatory currency reform aimed at cracking down on burgeoning private markets and reviving socialism. The move predictably set off chaos, and now it appears that the government is in retreat, acquiescing in the reopening of markets. The open question is what impact this episode may have for North Korea's looming leadership transition.

The mystery of Chinese savingsShang-Jin Wei (VoxEU) Feb 6, 2010
What is the connection between China’s one-child policy and its savings glut? This column provides a pioneering explanation. China’s surplus of men has produced a highly competitive marriage market, driving up China’s savings rate and, therefore, global imbalances.

Short-selling bans in the crisis: A misguided policyAlessandro Beber & Marco Pagano (VoxEU) Feb 6, 2010
Did the bans on short selling achieve their stated purpose of restoring order to the stock market and limiting unwarranted drops in prices? This column presents new evidence from 30 countries arguing that the effect on stock prices was at best neutral, the impact on market liquidity was clearly detrimental – especially for small-cap and high-risk stocks, and that the ban slowed down price discovery.

Memory and the dollar: New evidence on international demandRebecca Hellerstein & William Ryan (VoxEU) Feb 6, 2010
Will the dollar lose its dominant role in international transactions? This column argues that this will happen quite slowly, if at all. It presents new evidence that in developing economies, demand for dollars hinges much more on historical factors than on recent experience. The highest inflation rate recorded within a country over the past 30 years explains flows of cash dollars more compellingly than recent inflation rates.

Is Debt Trashing the Euro?Landon Thomas Jr (NYT) Feb 6, 2010
Greece's problems, and those looming over its neighbors, have laid bare the dangers of divergent fiscal and political policies in the euro zone.

Why Politics Is Stuck in the MiddleTyler Cowen (NYT) Feb 6, 2010
Economists view politics through the "median voter theorem," which holds that candidates can't stray far from the center if they want to be elected.

Tax banks to discourage systemic-risk creation, not to fund bailoutsEnrico Perotti (VoxEU) Feb 7, 2010
Obama’s plans for bank taxation took markets, policymakers, and academics by surprise, leaving all parties now debating its merits. This column suggests an alternative. By raising a Pigouvian tax based on banks’ individual contribution to systemic-risk creation, the policy would target the externality caused by funding fragility while raising the cost of opportunistic risk creation in good times.

Europe needs to show it has a crisis endgameWolfgang Münchau (FT) Feb 7, 2010
The EU needs to send out an urgent signal that it is willing to devise a robust anti-crisis policy, and that the eurozone will sort out its own problems.

How to make a bank raise equityOliver Hart and Luigi Zingales (FT) Feb 7, 2010
Regulators should be required to make a margin call any time the CDS price of a bank’s debt exceeds a threshold.

Anatomy of distress: New insight on the probability of bank turmoilMartin Cihák & Tigran Poghosyan (VoxEU) Feb 8, 2010
How safe are the banks? This column provides new evidence on what determines the likelihood of an EU bank experiencing distress, suggesting that bank risks have converged across EU members, and that a more tightly integrated financial regulation should reflect this. The results also call for a greater role for market discipline.

Time to tradeWP Feb 8, 2010
In recent days, it has sometimes looked as if the political logjam over trade might finally be about to break. In a State of the Union address centered on job creation, President Obama declared a National Export Initiative to double U.S. exports in five years.

The Eurozone debt crisis: Facts and mythsCharles Wyplosz (VoxEU) Feb 9, 2010
The latest turn in the global financial crisis has ensnared the debt of some European nations. The fact that these nations are members of a monetary union has generated much confused comment. Here one the world’s leading experts on Eurozone monetary and financial matters sets the record straight, debunking 10 myths and setting forth 10 frequently overlooked facts.

How disciplining China could save the WTOSusan Ariel Aaronson (VoxEU) Feb 9, 2010
Is the WTO doomed? This column argues that the WTO’s credibility is waning and that to get it back it needs to reign in China’s erratic governance. China’s failure to enforce trade laws threatens the concept of mutual benefit that underpins the WTO. China is broken, and a broken China could break the WTO.

Watchdogs need not bark togetherJoseph Stiglitz (FT) Feb 9, 2010
Given the difficulties in achieving global co-ordination, it is better to have strong action from individual countries now and then to harmonise regulatory structures later.

Investors show 'perverse' affinity for bondsBen Miller (FT) Feb 9, 2010
In the parlance of Jesse Livermore, the early 20th century Wall Street trader, the path of least resistance for the stock market is higher, yet investor resistance to stocks as evidenced by what people are actually doing with their money remains resolutely in favour of bonds.

Europe’s stragglers need German consumersMartin Wolf (FT) Feb 9, 2010
Greece fills the role of sinner to perfection, but if it and the rest of the peripheral European countries are to avoid meltdown they need a core demand engine within the eurozone.

Blind spots to the rightJulian Delasantellis (AT) Feb 10, 2010
Yes, the US national debt is rising, at around US$2 million a minute. But ignored by the polemicists on the right, other data, equally accessible, demonstrates that government spending did not bring about the financial crisis and even now is not bleeding the markets dry.

“Too big to fail” is no redemption songAvinash Persaud (VoxEU) Feb 10, 2010
Policymakers and commentators have recently argued for downsizing banks that are “too big to fail.” This column argues that the logic is based on an illusion. A 2006 list of institutions considered “too big to fail” would not have included Northern Rock, Bear Sterns, or even Lehman Brothers. Instead, regulators should aim to make the financial system less sensitive to error in the markets’ estimate of risk.

The Nordics in the global crisisThorvaldur Gylfason, Bengt Holmstrom, Sixten Korkman, Hans Tson Söderström & Vesa Vihriälä (VoxEU) Feb 10, 2010
Is the Nordic model an asset or a liability? The global crisis has seen GDP in the region decline by between 4.5% and 7%. This column argues that the Nordic model, with its welfare state and high rate of investment in human capital, can, properly implemented, be part of the solution.

The Case For Corporate BondsAlexandra Zendrian (Forbes) Feb 10, 2010
The corporate bond rally has been similar to the equities market's. There's still some room for growth.

Mixed Messages from the White House amid New Focus on TradeBridges Weekly Trade News Digest, Volume 14, Number 5 Feb 10, 2010
The White House appears to have awoken from its year-long slumber on trade matters, but the political climate for liberalising trade in the world's biggest national economy remains problematic.

A Greek crisis is coming to AmericaNiall Ferguson (FT) Feb 10, 2010
It would be a grave mistake to assume that the sovereign debt crisis that is unfolding will remain confined to the weaker eurozone economies. This is more than just a Mediterranean problem; it is a fiscal crisis of the western world.

Hurried reforms will not get banks lendingSir Martin Jacomb (FT) Feb 10, 2010
The design of a new regulatory structure requires much longer consideration and international agreement. Action should for now focus on capital and liquidity requirements.

Tough love is best for Greece long termJosé Maria Brandão de Brito (FT) Feb 10, 2010
By implementing a timely monetary policy exit, the ECB will prompt a firmer fiscal consolidation where it is most needed.

The Challenge of ChinaNYT Feb 10, 2010
There is little hope of progress -- on the global economy, global warming or Iran's nuclear ambitions -- unless Washington and Beijing work harder to manage their differences.

The Case Against International Financial CoordinationDani Rodrik (Project Syndicate) Feb 11, 2010
Global coordination of banking regulation, like global governance, sounds good - especially to bankers. That is because they know that it cannot deliver the tough regulations, closely tailored to domestic economic and political requirements, which financial markets badly need following the worst upheaval the world economy has experienced since the Great Depression.

Withdrawing the drugsEconomist Feb 11, 2010
Policymakers are wondering when and how to start a delicate task: weaning the world economy off fiscal and monetary stimulus

IMF Explores Contours of Future Macroeconomic PolicyIMF Survey Feb , 2010
The International Monetary Fund, at the forefront in recommending the policy response to the global economic crisis, has entered the debate about how macroeconomic policy should be adjusted in the future, drawing lessons from the worst global recession in 60 years.

Goldman's Contagion Warning Is Greek to MarketsWilliam Pesek (Bloomberg) Feb 12, 2010
If anyone could use a few days in the Sydney summer sun, it’s Jean-Claude Trichet. It was not to be. Pressing business this week yanked the European Central Bank governor back to the Brussels winter.

Trade and the skilled wage premium: Historical evidence from ChinaKris James Mitchener & Se Yan (VoxEU) Feb 12, 2010
How is the global trade boom affecting wages in developing countries? Evidence from China’s first widespread experience with globalisation suggests that, under certain conditions, the skill premium can decline when developing countries open up to trade.

Euro trash?John Browne (AT) Feb 12, 2010
As European leaders seek a way to resolve the Greek debt crisis, it will likely draw European Union member states into a covert political struggle that may decide the future of the union itself. As this battle ebbs and flows, both the euro and the US dollar likely will suffer great volatility.

Managing Financial Innovation in Emerging MarketsJohn Lipsky (IMF) Feb 12, 2010
In my address today, I will focus on the importance of finance for rapid and sustainable growth. While some might consider this topic odd in light of the current crisis, I will seek to draw out some key lessons of recent events for the appropriate policy stance toward financial innovation. Many critics —although notably not including policy-makers in India or in most other major emerging markets—have concluded that such innovation is to be actively discouraged. But I would claim that this is precisely the wrong lesson to draw.

Why pick on banks?Stephen A. Schwarzman (WP) Feb 12, 2010
At Blackstone, I've learned that the fundamental business model of some of the world's largests banks is under siege.

The Making of a EuromessPaul Krugman (NYT) Feb 14, 2010
The real story behind Europe's troubles lies not in the deficit but in the policy elites who pushed the Continent into adopting a single currency before it was ready.

Credit conditions and the great trade collapseDavin Chor & Kalina Manova (VoxEU) Feb 15, 2010
Was the great trade collapse due to the evaporation of credit? This column examines how the interbank lending rate across countries affected US trade during the crisis months to confirm the role of credit conditions in influencing trade patterns. It suggests the decline in trade volumes would have been about twice as large had interbank rates remained at the high levels of September 2008.

Why Mexico is the missing BricGideon Rachman (FT) Feb 15, 2010
With a population of over 112m people, a per capita income that is more than double that of China and privileged access to the US market, Mexico should be in this group of rising powers. But the country’s drugs problem is blighting its future.

Europe cannot afford to rescue GreeceOtmar Issing (FT) Feb 15, 2010
Financial aid from that amounted to a bail-out would violate EU treaties and undermine the foundations of monetary union.

How to Watch the BanksHenry M. Paulson Jr. (NYT) Feb 15, 2010
It is critical to learn from the financial crisis and put in place reforms to avert a repeat of 2008 or something even worse.

No Rest for the G20Olivier Cattaneo (Globalist) Feb 15, 2010
Have policymakers exhausted the margins of maneuver that differentiated 2009 from 1929?

Rethinking macro policyOlivier Blanchard, Giovanni Dell'Ariccia & Paolo Mauro (VoxEU) Feb 16, 2010
The global crisis forced economic policymakers to react in ways not anticipated by the pre-crisis consensus on how macroeconomic policy should be conducted. Here the IMF’s chief economist and colleagues (i) review the main elements of the pre-crisis consensus, (ii) identify the elements which turned out to be wrong, and (iii) take a tentative first pass at outlining the contours of a new macroeconomic policy framework.

Currency Trading Is Place to Make Your FortuneMatthew Lynn (Bloomberg) Feb 16, 2010
Forget hedge funds, walk away from private equity and tell the derivatives boys they can dump their baffling mathematical formulas in the dustbin under the desk. Instead, become a currency trader. They are set to become the new kings of the financial markets.

Emerging Market Bubbles are Essential for Global StabilizationArun Motianey (RGE) Feb 16, 2010
Policymakers have a hard time making sense of the fallacy of composition. We all, of course, now know about the paradox of thrift from our readings of the Great Depression where an excess of private virtue (greater private savings, debt prepayments) led to public doom (fall in effective demand, collapse in broad money supply). More recently we saw another kind of fallacy of composition at work. Our interconnected financial system stood on the verge of disintegration when the rational response for any single financial institution was to cut back on counterparty exposure, but when every other institution wanted to do the same thing it threatened to produce a wholesale collapse. The US Fed’s hub-and-spoke system of liquidity support – and equivalent measures by other central banks as well – was belatedly designed to thwart the market’s self-destructive tendency to freeze credit.

How to walk the fiscal tightrope that lies before usMartin Wolf (FT) Feb 16, 2010
Today, high-income countries face huge fiscal challenges crisis-hit countries start from grossly unsustainable fiscal positions. But massive fiscal tightening could tip much of the world back into recession.

Let Greece take a eurozone ‘holiday’Martin Feldstein (FT) Feb 16, 2010
The country could take leave of absence with the right and obligation to return at a more competitive exchange rate.

The US will continue to lose market shareByron Wien (FT) Feb 16, 2010
If the US is to stop losing ground against other mature and developing economies, it is going to have to put money to work more effectively.

Deficit flights of fancyJulian Delasantellis (AT) Feb 17, 2010
The current account deficits of Greece, other European countries of international concern, and the United States are, in fact, not particularly bad and are in a declining trend. Of greater concern are demands by historian Niall Ferguson and others that the US government restrain from supporting the economy when the private sector has pulled back. The consequences will not be pleasant.

After Greece, a new worldMartin Hutchinson (AT) Feb 17, 2010
The Greek default crisis has made it clear that national economies are no more risk-free than Lehman Brothers or Merrill Lynch. That is good news for Asian countries such as South Korea, Indonesia and China that have used the past decade to good effect in working out sound policies. India is another matter.

Institutions matter for growth – but which ones and how much?Wendy Carlin, Mark Schaffer & Paul Seabright (VoxEU) Feb 17, 2010
How much do institutions matter? This column provides a new insight into measuring their effects, suggesting that a survey of managers’ perceptions of the impact of institutions should be used as an estimate of the effect. It finds that the combined impact of improving public inputs in low-income countries to their level in high-income ones is equivalent to raising output by about 20%.

The importance of G7 consumption growthAshoka Mody & Franziska Ohnsorge (VoxEU) Feb 17, 2010
Just how important is consumption for growth? This column suggests that consumption trends in the G7 economies have significant short-term and long-term implications for global growth and global imbalances. For sustained rebalancing of the global economy, however, investment behaviour may be more important.

Doha Pessimism Dominates as 'Stocktaking' Announcement NearsBridges Weekly Trade News Digest, Volume 14, Number 6 Feb 17, 2010
WTO Director-General Pascal Lamy is set to make a long-anticipated announcement regarding an end-March 'stocktaking exercise' on the Doha Round trade talks when he addresses a meeting of the WTO's General Council on Tuesday. The proposed exercise is meant to assess whether the eight-year-old trade talks can be brought to a conclusion before the end of 2010, an outcome that trade officials say is increasingly unlikely.

Greece - the mutating financial crisisHossein Askari and Noureddine Krichene (AT) Feb 18, 2010
The consequences of a decade of loose monetary policies in major reserve currency centers are now being felt in Greece. Other countries will follow in its path, their pain seen in durable economic stagnation and unemployment.

Will stabilisation limit protectionism?Simon J Evenett (VoxEU) Feb 18, 2010
The threat of tit-fo-tat protectionism is not over yet. This column presents the latest report from the Global Trade alert and suggests the recent recovery has not slowed the protectionism wave. In the last quarter of 2009, almost every major trading nation has implemented discrimination against foreign commercial interests above trend levels.

Bailing out the banks: Reconciling stability and competitionThorsten Beck, Diane Coyle, Mathias Dewatripont, Xavier Freixas & Paul Seabright (VoxEU) Feb 18, 2010
Billions have been spent saving European banks. Should these bailouts be subject to the usual competition rules or should stability be allowed to trump ‘business as usual’? This column introduces a new CEPR report “Bailing out the Banks: Reconciling Stability and Competition” that argues for a more subtle reaction. Competition policy is critical even in crises but the rules applied must recognise the special features that mark a crisis-struck banking sector.

Dividend restrictions as macroprudential regulationCharles A.E. Goodhart, Udara Peiris, Dimitri Tsomocos & Alexandros Vardoulakis (VoxEU) Feb 18, 2010
The global financial crisis has led many to propose regulatory measures that will reduce the idiosyncratic and systemic risk of banks. This column argues in favour of the suggestion by the Bank for International Settlements to block banks from paying dividends to shareholders or bonuses if their capital levels fall below a minimum threshold.

Latest insights on antidumping, safeguards, and protectionism during the crisisChad P. Bown (VoxEU) Feb 18, 2010
Protectionism has been a growing concern during the global crisis. This column examines the fourth-quarter data from the Global Antidumping Database. For the first time since the onset of the crisis, the world witnessed a substantial decrease in industry demands for temporary new import barriers through trade remedies. But this period also saw a substantial increase in new trade barriers imposed, as the trade-remedy investigations initiated earlier in the crisis concluded with new protection.

Europe cannot leave Athens on its ownTommaso Padoa-Schioppa (FT) Feb 18, 2010
Leaders of the European Union are right to offer support to Greece but they have been appropriately vague on the type of action that should be taken.

Financial Regulation: A New Fortress Europe?Nicholas Véron (PIIE) Feb 18, 2010
Cross-border integration of financial institutions and markets in Europe has been the major factor determining the shape of the European Union's financial regulatory initiatives during the 2000s. A major legislative package rolled out after 1999, for example, contributed to the removal of barriers that until then had kept much of Europe's financial activity largely national.

The US battle to pull the propsGillian Tett (FT) Feb 18, 2010
Could the Obama administration’s plans to curb “proprietary trading” produce a nasty jolt for the US Treasuries market?

Greece Inches BackNYT Feb 18, 2010
As long as Athens holds to reducing its deficit, richer members of the euro zone should stand ready to guarantee Greek bonds against default.

Can Europe Build a Better EMF?Edwin M. Truman (PIIE) Feb 19, 2010
Daniel Gros and Thomas Mayer, writing on the Economist website, propose that Europe build a European Monetary Fund (EMF) that would be better than the International Monetary Fund (IMF). The EMF would be financed by its weakest members, would be stricter than the IMF in its policy conditionality, and would have a pre-positioned resolution mechanism to address sovereign default. Their proposal is an economic, financial, and political nonstarter. Pursuit of their suggestion would be counterproductive to the European project. Europe would be better advised to send Greece to the IMF for a comprehensive economic reform program than to continue to nurture it in the European context.

A call to expand offshore market of renminbiRichard Olsen (VoxEU) Feb 19, 2010
Many economists have pointed to China’s exchange rate policy as a cause for global economic instability. This column argues that an offshore market for the renminbi will provide a dynamic and objective benchmark from which to assess the value of China’s currency and to exert pressure to float its exchange rate.

The China syndrome on exchange ratesMohamed Ariff (VoxEU) Feb 19, 2010
China’s exchange rate policy has implications for global trade and particularly other East Asian nations. This column argues that, given China’s fixation on the dollar peg, countries such as Thailand and Malaysia may have no choice but to peg their currencies to China’s yuan.

Global: ER, RR, IOR and RRRManoj Pradhan (MS GEF) Feb 19, 2010
We believe that the reaction to recent communication from the Fed and the ECB and the PBoC’s second RRR hike is overdone. The RRR hike was mostly about liquidity management rather than actual policy tightening. In the US and the euro area, draining of excess reserves and policy tightening are still a long way off.

Having a Large Euro Area Is an Advantage for Germany Adam S. Posen (PIIE/Die Welt) Feb 19, 2010
Listening to the current hue and cry over Germany's role in backstopping Greek restructuring, one might be duped into thinking that having the euro extend beyond the core economies was a great mistake. Whatever the balance of economic costs and benefits of euro adoption for other countries, for Germany itself, widespread euro adoption has been a boon. There are many advantages to being the anchor economy for a currency zone from which Germany has benefited over the last 11 years. None of those advantages are imperiled by the Greek situation and all of those advantages increase with the size of the euro area.

The Global Economy and MeDaniel Griswold (Globalist) Feb 19, 2010
What does your closet reveal about your place in the global economy?

Early Warning System for Financial Crises NeededLeif Rosenberger (RGE) Feb 19, 2010
If a tropical storm begins to gather hurricane-level strength off the coast of Florida, FEMA warns us. If a ballistic missile is launched somewhere in the Middle East, shared early-warning systems immediately alert affected nations while that missile is still airborne. If a global economic crisis is lurking around a corner … nothing happens. Instead of a triggered warning that allows for avoiding catastrophic consequences, the crisis simply hits, taking national economies and countless individuals' livelihoods with it.

Redemption or abstinence?Ricardo Hausmann & Ugo Panizza (VoxEU) Feb 21, 2010
Is “original sin”, a situation in which the domestic currency is not used to borrow abroad or to borrow long-term even domestically, no longer a problem? This column argues that, while original sin has diminished and countries are making greater use of their domestic bond market, foreign currency debt is still too risky to be sensible.

Inflation must not become a moving targetWolfgang Münchau (FT) Feb 21, 2010
Price stability is a critical component of the social contract we call money. We accept money as a means of payment, a unit of account and a store of value and trust that the central bank does not debase it.

Figuring out the Doha RoundGary Clyde Hufbauer, Jeffrey J. Schott & Woan Foong Wong (VoxEU) Feb 22, 2010
Fears of protectionism have risen in the wake of the global financial crisis. This column argues that, far from being time to abandon the Doha Round, sustaining political support for the rules-based multilateral trade system is more important than ever. If this column’s recommendations are followed, world GDP could gain up to $282.7 billion a year.

Risk taking, regulatory capture and bailouts: The doomsday cyclePeter Boone & Simon Johnson (VoxEU) Feb 22, 2010
Over the last 30 years, the US financial system has grown to proportions threatening the global economic order. This column suggests a ‘doomsday cycle’ has infiltrated the economic system and could lead to disaster after the next financial crisis. It says the best route to creating a safer system is to have very large and robust capital requirements, which are legislated and difficult to circumvent or revise.

The rise of “euro-emerging” multinationalsJavier Santiso (VoxEU) Feb 22, 2010
FDI has fallen dramatically as a result of the global financial crisis. But this column shows that the trend for the decade is still up, suggesting a greater resilience of investment inflows towards emerging markets. Emerging markets are no longer considered a remote and exotic category for European companies; they are now a vital part of the “euro-emerging” multinationals.

Greece should try a fiscal devaluation, not holiday from the EurozoneDomingo Cavallo & Joaquín Cottani (VoxEU) Feb 22, 2010
Martin Feldstein argued last week that Greece should take “a temporary leave of absence with the right and the obligation to return at a more competitive exchange rate.” In this column, Argentina’s highly regarded former Minister of the Economy and a co-author argue that the idea won’t work. A better solution would be to adjust the Greek tax system.

How to destroy the Eurozone: Feldstein’s euro-holiday ideaRichard Baldwin & Charles Wyplosz (VoxEU) Feb 22, 2010
Martin Feldstein suggested last week that Greece take a “holiday” from the Eurozone, rejoining with a depreciated nominal exchange rate. This column argues that the idea is not just impractical, it’s dangerous for the Eurozone.

Greece threatens more than the euroGideon Rachman (FT) Feb 22, 2010
The Greek crisis is about the very basis on which European unity has been built for the last 60 years. It threatens not just the euro but the entire edifice of the European Union.

Europe Needs an "Economic Government" but Greece Has Made the Goal Even More ElusiveJacob Funk Kirkegaard (PIIE) Feb 22, 2010
It is hardly a surprise that Greece's struggles and Europe's fitful response have come to illustrate the problems of an incomplete integration of Europe and the eurozone. As predicted by many economists before the introduction of the euro, the fact that the eurozone is not an "optimum currency area" has left the region vulnerable to asymmetric shocks, which then played a large role in the current crisis. The European Union and the eurozone do have relatively large degrees of labor and capital mobility, despite language and cultural barriers. Similarly, Europe has had—at least during the current downturn—a relatively synchronized business cycle.

Europe's Crisis of IdeasPhilip Stephens (WSJ) Feb 23, 2010
Europeans' worship of the state and corresponding suspicion of free markets doom their countries to economic stagnation.

US holds key to eurozone successMartin Hutchinson (AT) Feb 24, 2010
European proponents of a centralized finance minister for the eurozone should look instead to the United States for a lesson on how to avoid a repeat of the Greek market panic. Member countries should commit to a balanced budget or quit the currency regime.

Iceland should stand up to shameful bullyingJohn Kay (FT) Feb 23, 2010
The assertion that depositors in Kaupthing and Landsbanki have a claim on ordinary people who were too prudent to put money there has little justice or legal basis.

Greece will not be fixed by populist measuresJohn Plender (FT) Feb 23, 2010
The notion that southern European countries can be solved by a stringent dose of fiscal austerity and the equivalent of an International Monetary Fund programme is plausible but utterly wrong.

March Too Early to Bring Ministers to Geneva: LamyBridges Weekly Trade News Digest, Volume 14, Number 7 Feb 24, 2010
A late March 'stocktaking' meeting to assess progress in the Doha Round of world trade talks will not involve trade ministers, WTO Director-General Pascal Lamy told a meeting of the organisation's General Council on Monday.

Environmental Goods Attract Renewed Engagement at WTOBridges Weekly Trade News Digest, Volume 14, Number 7 Feb 24, 2010
Engagement in the WTO's negotiations on liberalising trade in environmental goods is at a three-year high, according to a source with knowledge of the 18-19 February Special Session of the Committee on Trade and Environment.

How to stop another derivatives infernoGary Gensler (FT) Feb 24, 2010
Chicago was rebuilt with new rules to limit the risk of fire. Likewise, the public needs protecting against the risks of over-the-counter derivatives.

Show hedge funds a little loveJames Mackintosh (FT) Feb 24, 2010
Hedge fund managers have been listening to politicians, and they are voting with their feet.

The IMF Staff’s Misleading New Evidence on Capital ControlsWilliam R. Cline (PIIE) Feb 24, 2010
On February 19, 2010, the International Monetary Fund released a “Staff Position Note” on capital controls as a policy instrument. The paper concluded that, subject to four conditions, controls on capital inflows can be justified. The four conditions are: the economy is operating near potential, there is an adequate level of reserves, the exchange rate is not undervalued, and the excessive flows are likely to be transitory.

Silicon Valley Is Not Wall Street Feb 24, 2010
Venture capital and investment banking are two completely different species. Washington should stop lumping them together.

Services-led growth: A new hope for development late-comers?Ejaz Ghani (VoxEU) Feb 25, 2010
Which is the best route to development: Manufacturing or services? This column argues that India’s example of a “services revolution” – rapid growth and poverty reduction led by services – provides inspiration for late-comers to development and challenges the conventional wisdom that industrialisation is the only rapid route to economic development.

The economics of cloud computingFederico Etro (VoxEU) Feb 25, 2010
What will the next big technology be? This column argues that “cloud computing” will have a dramatic effect on how we live our lives and how we do business. The economic impact of the diffusion of this technology could match that of telecommunication infrastructures in the '70s and '80s or the introduction of the internet in the '90s. Once diffusion gathers apace, cloud computing could significantly boost GDP growth and could create around a million EU jobs within five years.

Time for independent fiscal policy committeesTim Besley & Andrew Scott (VoxEU) Feb 25, 2010
The financial crisis has brought large fiscal deficits and soaring public debt. A switch to tight fiscal policy risks throttling the recovery, but continuing deficits are spooking markets. This column argues the obvious solution is to promise future fiscal rectitude and stick with the current expansionary policies in the near term. This requires independent fiscal policy committees to institutionalise fiscal transparency and restore credibility to governments’ long-term public finances.

Global: Default or Inflate or...Gerard Minack & Jason Todd (MS GEF) Feb 25, 2010
Our colleagues have argued that governments and central banks may choose to inflate away the debt, but we are not persuaded that they would want to go down the inflation route and, even if they did, that it would work. We have another view.

Post-crisis Rethink at Asia ConferenceIMF Survey Feb 25, 2010
Top policymakers and academics from around Asia and G-20 countries have been meeting in Seoul to debate some of the most pressing issues to emerge from the worst economic slump since the Great Depression.

Global imbalances: Are emerging markets the new guest at the party?Ari Aisen & Dalibor Eterovic (VoxEU) Feb 26, 2010
What will happen to the global imbalances that many argue caused the global financial crisis? This column suggests that, while both surplus and deficits countries may make adjustments, emerging markets that have so far been on the sidelines of the action and outside the core discussion of global imbalances could start to absorb the excess liquidity.

IMF in Rethink of Its Role in Post-crisis WorldIMF Survey Feb 26, 2010
The IMF rethinks its post-crisis role to ensure it does the right job for its members. The IMF issues the first paper in a series on the Fund's mandate, reflecting on how it can promote global stability and how its membership might best support that process.

Asia's permanent advantageChan Akya (AT) Feb 27, 2010
Traveling around Asia quickly teaches that "growth" is more than economic statistics - it increasingly means efficient airports, good roads and quality service that mock "developed-world" counterparts. Asia, with the financial muscle and determination to continue this trend, is developing an apparently permanent advantage, leaving Europe and North America ever further behind.

Academics on What Caused the Financial CrisisVarious (WSJ) Feb 27, 2010
Understanding what caused the recent financial crisis is essential to successfully refining the practice of finance to reduce the odds of repeating it. So the Financial Crisis Inquiry Commission on Friday and Saturday heard several academic economists’ take on what led to a near meltdown of the global economy.

Why the IMF should deal with GreeceJuergen Matthes (VoxEU) Feb 27, 2010
The situation in Greece has called into question the EU’s ability to deal with fiscal crises. This column argues that the EU’s political vulnerability is likely to prevent it enforcing existing rules for fiscal discipline. The IMF should therefore be called in. This would take the blame off the Eurozone, re-establish lost credibility, and avoid moral hazard.

Is China trying to “lock up” the world’s natural resources?Theodore H. Moran (VoxEU) Feb 27, 2010
The rapid emergence of China as a major industrial power poses a complex challenge for the world’s natural resources. This column argues that the Chinese government-backed investments in natural resource supplies are predominately in areas that will help expand, diversify, and improve competition in the global supplier system. But potential geopolitical consequences remain a reason for concern.

Macroeconomics for the 21st century: Part 1, TheoryRoger E. A. Farmer (VoxEU) Feb 27, 2010
What are the implications of combining Keynesian ideas with Walrasian general equilibrium theory in a way that does not assume sticky prices? This column presents the first of a two-part outline of a new macroeconomics paradigm for the 21st century, starting with the theory.

Macroeconomics for the 21st century: Part 2, PolicyRoger E. A. Farmer (VoxEU) Feb 28, 2010
What are the implications of combining Keynesian ideas with Walrasian general equilibrium theory in a way that does not assume sticky prices? This column presents the second in a two-part outline of a new paradigm for macroeconomics in the 21st century, focusing on policy. It argues that fiscal policy is not the right response to a financial crisis.

Persistence of bad governmentsDaron Acemoglu, Georgy Egorov & Konstantin Sonin (VoxEU) Feb 28, 2010
Why do bad and incompetent governments emerge and persist under a variety of different political regimes? This column presents a new insight. Even though more democratic regimes do not necessarily perform better than less democratic ones under given conditions such as during conflicts or early economic development, more democratic regimes do appear to have greater flexibility in the face of shocks.
Wolfgang Münchau (FT) Feb 28, 2010
Since naked CDSs constitute a large part of all CDS transactions, the case for banning them is about as a strong as that for banning bank robberies.